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Outside influences will lead to lower investment sales activity in 2020, but there's still reason to celebrate
Context is important as we enter the final quarter of 2020, especially as it pertains to the single-tenant net lease market. There are a number of factors influencing this sector, not to mention the overall commercial real estate industry - economic conditions, politics, civil and social issues, growing consumer reliance on e-commerce, and the pandemic are just a few worth mentioning. But in light of all the uncertainty, the market has done anything but grind to a halt. Instead, we stand ready to meet or exceed $50 billion in transaction volume this year. $50 billion! That's a tremendous number illustrating significant investor demand across this niche space. Just 10 years ago, the market wasn't able to generate enough demand to hit $20 billion in sales, and the $50-billion-mark was a milestone we were only able to celebrate reaching in 2014 - a mere six years ago.
Our perspective has changed though. The last two full calendar years have seen shockingly strong levels of investor activity, with approximately $70 billion in sales reported in 2018 followed by another record-setting year in 2019 where nearly $80 billion in sales were reported. If the market falls from those levels and reports an estimated 35 to 40 percent year-over-year decline in sales volume, that will undoubtedly raise concerns. However, we must remember the context.
This has been an unusual year with significant outside influences, but demand continues to be strong for net lease investments. Drugstores, dollar stores, dialysis centers, convenience stores, and other essential retailers are exceptionally popular with investors today. The industrial sector, with its critical role in e-commerce and logistics, is also in high demand. The industry isn't without its questions though. What's the future of the office sector if the work-from-home trend continues and influences long-term tenant strategies? How will non-essential retailers cope with the current and lasting impacts of COVID-19? How will consumer behavior change in a post-pandemic world and is it possible that investors may see a new property type or use emerge in the net lease space? Time will tell, but despite this year's reduction in activity, the market's reliance is something worth celebrating.